|Latin America I 2001
|Electronic Commerce in Latin America: A Sketch of Its Current Status and Immediate Prospects
|Director,Division for Services Infrastructure for Development and Trade Efficiency
|United Nations Conference on Trade and Development
Latin America is the world’s fastest growing Internet market. For businesses in the region to capture the potential benefits countries need to equip their people with the skills that are relevant in a digital economy. Business practices and culture also need to be adapted. Governments should accompany these efforts with policies aimed at widening Internet access, completing the regulatory framework of e-commerce and enhancing the infrastructure needed to support transaction fulfilment.
For Latin America, as for the rest of the developing world, the Internet opens up fascinating new opportunities in all aspects of social development. The Internet will bring about deep changes in the way Latin Americans work, do business, get access to government services and participate in their political systems. At the same time, adapting the societies of Latin America to the Internet revolution represents a formidable challenge, especially in the economic sphere. Realising the importance of this challenge, not just for Latin America but for the global community, the member States of the United Nations Conference on Trade and Development (UNCTAD) have given our organisation a mandate to analyse the implications of the Internet, and especially of e-commerce, for global economic development. As part of our activities to implement this mandate, UNCTAD will publish later this year its annual E-commerce and Development Report, which will include a study of the current status of e-commerce in Latin America and its prospects for the immediate future. I am pleased to be able to present here a very preliminary summary of our findings. I will not go into the figures concerning the telecommunications infrastructure that supports e-commerce, as this will be covered in detail elsewhere in this publication. Suffice to say that, whether one looks at the stock of personal computers, number of Internet hosts, or teledensity indicators, Latin America still lags well behind the developed countries, although some of its figures are better than those of advanced developing countries in other regions. I would just add, as an anecdotal but revealing example of this infrastructure gap, the fact that there are about 300,000 more Internet hosts in Canada that in all of Latin America. In spite of these difficulties, the medium term perspectives for the development of the Internet in Latin America are good. Latin America is currently the world’s fastest growing region in terms of Internet use. According to the Inter-national Telecommunications Union, last year the number of Internet hosts in Latin America grew at a rate of 136 percent, well ahead of North America (74 percent), Asia (61 percent) and Europe (30 percent). The Latin American stock of personal computers is also growing fast. In 1999, the Latin American market for PCs grew at a yearly rate of 25 percent. “Two-thirds of the telecommunications service providers in Latin America are now fully or partly in private hands.” Deregulation and privatisation in the telecommunication sector have advanced faster in the countries of the region than in most other developing countries, which should facilitate the catching-up process. Two-thirds of the telecomm-unications service providers in Latin America are now fully or partly in private hands. Increased competition is leading to a reduction in cost (although on average they remain higher than in developed countries), faster introduction in new technologies and improved customer service. The use of cellular phones is also spreading very quickly, and in countries such as Uruguay and Venezuela there are now more cellular phones than fixed lines. A growing share of the cellular phones sold in the region is capable of handling Internet messaging systems, and according to some estimates (Jupiter Research), about 50 million users will be accessing the web via mobile devices by 2005. The other component of the cost of accessing the Internet, Internet service provider charges, is also going down, although from a relatively high base, partly thanks to free access providers. By some estimates, in 2000 the total cost of accessing the Internet fell by as much as 23 percent in Argentina, 20 percent in Brazil and 8 percent in Mexico. The relative backwardness of the traditional economy in Latin America can also be a factor that will facilitate the spread of the Internet economy in the region. For Latin American companies, the possibility to “leapfrog” from old, inefficient business methods to cheaper, faster e-business creates a greater potential for growth of Internet-based business than in some more developed markets. For example, while in Europe and North America security concerns may make customers reticent to adopt e-banking, for Latin American firms the quality of traditional banking services is relatively poorer, so they have a stronger incentive to move on-line. Brazil’s largest bank, Bradesco, claims to have more on-line customers than any other bank outside the United States. The same trend is visible in other areas of Internet use, such as government services. Also in Brazil, the Federal and State governments are using the Internet as a tool to enhance the efficiency of the public sector. This allows a large and growing number of taxpayers to use the Internet to submit their tax declarations. Although predictions about the effects of these trends on the number of Internet users in Latin America vary from the moderately optimistic to forecasts of skyrocketing growth, it is safe to anticipate that in three years the total number of Latin American Internet users will grow strongly, perhaps to about 30 million users, compared to the approximately 10 million users at the end of last year. About two-thirds of them will concentrate in Brazil and Mexico and most of the rest in Argentina, Chile, Colombia and Venezuela. This means that the relative weight of Latin American users will increase by 50 percent in the next three years, jumping from approximately 4 percent to 6 percent of all Internet users in the world. How does this potential translate into e-commerce figures? A word of caution is necessary here given the scarcity of available data, particularly concerning business-to-business (B2B) e-commerce. As far as business-to-consumer (B2C) e-commerce is concerned, a study by International Data Corporation Research (IDC Research), estimated that the volume of B2C e-commerce in Latin America in 1998 was US$167 million a 361 percent increase over the 1997 figure. IDC research predicted a yearly cumulative growth rate of 117 percent between 1998 and 2003, which means that by the end of that year B2C volume in Latin America would reach US$8 billion. Another recent study by the Boston Consulting Group and Visa estimated B2C revenue in Latin America at US$580 million for the year 2000 compared with US$109 million in 1999. It is clear that while there are problems in determining with precision the volume of B2C e-commerce in absolute terms, the trend so far has been one of very high year-on-year growth. As for the geographical distribution of this sales volume, it is generally estimated that as much as 90 percent of B2C in Latin America benefits companies based outside the region, with US companies clearly leading. Brazilian B2C accounts for most of the remaining 10 percent, with small shares for Mexico (0.6 percent) and Argentina (0.2 percent). The reasons for this predominance of suppliers from outside the region are clear: few Latin American companies have web sites that can support full on-line transactions; local companies face difficulties to process on-line payments (particularly because of low credit card usage); consumers are likely to find wider choice and better prices in overseas web sites; and physical distribution is perceived as slow and unreliable. In terms of products, and much like in the rest of the world, most of Latin American B2C e-commerce concerns books, hardware, software, music, travel and financial services. In the area of B2B, activity is concentrated in the service sector, notably transport, communications and financial services. The volume of B2B e-commerce in the region can be put at approximately US$2,850 for 2000, heavily concentrated in Brazil, Mexico and Argentina. The move towards B2B is being led by large corporations, particularly those that are foreign-owned, and concentrates essentially in procurement operations. There are also some local initiatives in this field, aiming at the creation of horizontal portals. A clear example is the creation in Chile of a joint site operated by the Chamber of Commerce of Santiago and the National Association of Procurement Executives, which allows users to perform several procurement tasks on-line. As for the small-and medium-sized enterprises, their involvement in e-commerce is still very limited, due to a perceived high cost of telecommunications and Internet access, restricted supply of information and added-value services, security concerns and a business culture that favours direct, personal contact over on-line, distance business practices. What are the main conclusions that one can draw from this very limited sketch of the situation of e-commerce in Latin America? First, that for Latin America there is not one digital divide but several. There is of course the gap that separates it, and in different degrees the rest of the developing world, from the more advanced countries. There is a second, specifically Latin American digital divide that runs between a few Latin American countries (Brazil, Mexico, Argentina, Chile, Uruguay) and the rest (with Colombia and Venezuela ahead and the rest of the Andean countries and all of Central America far behind). A third digital divide is not unlike that which concerns developed countries and refers to differences of access to the benefits of the Internet because of reasons of income and education; in the case of Latin America, where income inequality is much more severe than in other regions, the Internet revolution is for the time being even more restricted to a urban, high-income, predominantly male population. Second, that the challenge for Latin America is not merely a technological one. Latin American societies need to make an effort to equip their people with the skills that are needed to compete in the digital economy, starting with basic education and a dramatic enhancement of computer literacy levels. Like in many other aspects of the e-economy, this is an endeavour where partnerships between the public and the private sector must play a central role. A change of mindset is also needed in much of the private sector, which is not sufficiently aware that the traditional Latin American business culture needs to be adapted to the realities of e-business. Third, realising the full potential of e-commerce in Latin America will require significant investment to improve the telecommunications infrastructure. This will not be possible without much greater involvement of the private sector. To achieve it, Governments will have to explore policies to promote transparency and competition in the telecommunications sector, which will also result in lower Internet access costs. They should also consider facilitating the access of private operators to public telecommunications networks. Fourth, Governments should pursue their efforts to modernise the regulatory framework; Latin America’s record in this respect is a mixed one. Although a few countries have already implemented changes in areas such as electronic signatures, much remains to be done in the region concerning issues such as the protection of on-line consumers, taxation of on-line commerce, data protection etc. Policies should be implemented to provide easier access to the Internet through telecentres in rural and disadvantaged areas. Finally, Governments should step up their efforts to introduce the Internet, and information technologies in general, in the public sector. E-government will not only improve public sector efficiency, but will also provide an incentive for people and businesses to familiarise themselves with business practices. Conclusion All my previous observations should not obscure the fact that there is a promising digital future for Latin America. There is a lot of catching-up to be done, but Latin America is moving quickly. This is a region with almost 600 hundred million consumers, whose larger economies have undergone painful reform processes that will enhance their long-term potential for growth. They are actively engaged in regional integration efforts and in multilateral trade dialogue. Latin American development strategies rely more and more in participation in international trade as an engine for growth and development in an open economy. Electronic commerce will not be the panacea, but it will have an important and growing role to play in the future of Latin America. *The views expressed in this article are exclusively the author’s own and do not necessarily reflect the official positions and policies of the United Nations.